The U.S. Small Business Administration (SBA) is set to introduce new government-backed credit lines up to $5 million aimed at supporting small businesses, according to a recent announcement.

This initiative will launch a working capital pilot program within the next few months. Designed to be more appealing to both lenders and borrowers than current SBA offerings, this new program will include annual fees and interest rates pegged to the prime rate plus an additional 3% to 6.5%, resulting in an approximate range of 12% to 15% at present.

A primary goal of this program is to help small businesses secure the necessary capital to pursue contracts and expand operations, such as infrastructure projects or manufacturing expansions. The ongoing struggle small businesses face in obtaining working capital to fulfill these commitments is a key focus of the initiative.

This move is part of the SBA’s broader strategy to enhance its primary lending programs for American small businesses. Through the 7(a) loan program, the SBA offers guarantees to lenders to incentivize loans to small business owners. In the previous year, the program facilitated over 57,000 loans totaling $27.5 billion, marking a 7% increase from 2022, with the majority of loans being less than $350,000.

However, revolving lines of credit have seen lower engagement from lenders and business owners than anticipated. The SBA Express loan program, offering credit lines up to $500,000 with a 50% guarantee, and the CapLines program with its complex fee structure, have been less popular due to their limitations and costs.

This new product aims to simplify access to working capital lines by combining the best elements of current options into a pilot program. This will make it easier and more affordable for borrowers to access working capital, reducing reliance on credit cards or other costly capital sources.

The SBA’s revamped working capital lines will feature annual fees and maximum interest rates tied to the prime rate plus 3% to 6.5%, currently translating to about 12% to 15%. These lines will enable small business owners to finance specific projects or borrow against their assets.

For loans exceeding $150,000, the SBA will provide a 75% guarantee to mitigate lender risk, while loans under $150,000 will have an 85% guarantee.

In an environment of rising interest rates, it is crucial for the SBA to remain a viable option for more businesses.

Interested business owners can apply for the program once it is live through the SBA’s website or its pre-screening lender platform.